HILSENRATH’S TAKE
Central bankers gathering in Jackson Hole, Wyoming later this week might take a few moments to reflect on the divergent paths they’re traveling.

Bank of England officials are talking about when to raise short-term interest rates. The Federal Reserve is on track to end a stimulative bond-buying program and some officials there are pressing for early rate hikes. Going in the other direction, the European Central Bank, in an effort to boost the stagnant European economy, has started experimenting with negative short-term interest rates. Bank of Japan officials are debating whether they have done enough to support flagging economic growth.

Many other central banks are going in different directions. Between June and August, the following central banks lowered interest rates: Israel, Hungary, Sweden, Romania, Mexico and Korea. Meantime, these raised rates: Russia, South Africa, Malaysia, Philippines and New Zealand. Chinese officials have taken small measures to boost economic growth, while India’s last step was an interest rate increase in January.

This is in part good news. When the world’s economies sank in unison in 2008 and 2009, central bankers all threw out life rafts together. The fact that they’re moving in different directions today shows they’re now contending with local dilemmas – weak growth in Europe, currency outflows in Russia, a rebound in the U.K., inflation in South Africa – and not a global crisis. But it’s also proof that economies around the world are not in sync, which could prove to be a headwind to growth everywhere.

- By Jon Hilsenrath

MORNING MINUTES: KEY DEVELOPMENTS AROUND THE WORLDFed Bets It Won’t Wait Too Long on Rates. In a recent Wall Street Journal survey, 30 private economists said they feared the Federal Reserve would wait too long before raising short-term interest rates, while only three said they feared the Fed would move too early. Will the Fed fall behind the curve and keep interest rates too low for too long as the economy strengthens? The question looms as officials travel this week to their annual gathering in Jackson Hole, Wyo., where they and the world’s leading central bankers discuss economic issues.

Kocherlakota Says Fed Still Missing Inflation, Jobs Goals. U.S. inflation has remained consistently below the Federal Reserve‘s 2% inflation target and is forecast to continue doing so, while the broader economy is still “some way” from full employment, Minneapolis Fed President Narayana Kocherlakota said Friday.

Carney Says U.K. Rate Rise Doesn’t Need Wage Growth. Bank of England officials don’t need to wait for wage growth to increase before raising interest rates in the U.K., Gov. Mark Carney said in an interview published Sunday. Mr. Carney told the Sunday Times newspaper officials are instead watching for signals that a rise in pay is in prospect.

Bundesbank Warns of Slowing German Economic Growth. Germany’s central bank warned Monday that global tensions such as the crisis in Ukraine are weighing on the outlook for Europe’s largest economy, putting earlier assumptions about the strength of the country’s growth at risk.

French Finance Minister Pushes ECB for Lower Euro. French Finance Minister Michel Sapin Monday called on the European Central Bank to act to bring the euro down to a level he described as more “normal.” Mr. Sapin has stepped up pressure on the ECB in recent days to stimulate the euro-zone economy after figures showed a stagnation in France and the currency bloc in the second quarter.—Dow Jones Newswires.

China’s Effort to Clean Up its Banking System is Gaining Momentum. This month, the country’s four largest state-owned lenders have started raising a planned $73 billion in debt and equity to beef up reserves. That tally is expected to jump to more than $300 billion in the next five years, according to the banking regulator. Pushing banks to bolster their cash cushions will not only better protect them from deteriorating loans but could also help reopen the lending spigot and boost economic growth.

BOJ Official Will Run for Local Election in Fukushima. A senior Bank of Japan official, Takeshi Hachimura, said Sunday he is abandoning his prominent position at the central bank to run for governor of Fukushima to accelerate the reconstruction of the region battered by the 2011 earthquake and tsunami and the subsequent nuclear disaster.

Russian Central Bank Widens Exchange Rate Corridor. The central bank said in a statement it would widen the corridor Monday to nine rubles from seven to allow the currency more flexibility. The changes are made as part of the move to inflation targeting, the bank said in a statement. –Dow Jones Newswires.

Iceland Reappoints Central Bank Governor. Iceland’s government Friday reappointed its central bank governor, Mar Gudmundsson, for a second five-year term, backing him to continue steering the tiny island nation’s recovery from a devastating financial crisis six years ago.

GRAPHIC CONTENT
Americans displayed a selective willingness to borrow money during the spring, taking out new auto loans at the fastest pace in nearly eight years while fresh home loans tumbled to the lowest level since 2000.

FORWARD GUIDANCE
TUESDAY
-Australia’s central bank releases minutes from its August policy meeting at 11:30 a.m. local time

RESEARCHChicago Fed Paper Says ‘Slack’ in Job Market Hurts Wage Growth. The U.S. labor market still has plenty of unused capacity or “slack,” and that hurts workers at the bottom of the income ladder the most, according to a paper released Friday by two economists from the Federal Reserve Bank of Chicago. They say labor market conditions have “yet to revert fully to prerecessionary levels.”

COMMENTARY
The “newly acquired risky assets” on the Fed’s balance sheet as a result of quantitative easing could threaten the central bank’s solvency, especially if high inflation constrains the Fed’s ability to create more money, Norbert J. Michel and Stephen Moore write in a paper from the Heritage Foundation. “In other words, a scenario could arise whereby the Fed would need an injection of capital from the Treasury because it could no longer credibly print money.”

John Carney writes in the Journal’s Heard on the Street column that the Fed’s experimental reverse-repo program could yield benefits by “simplifying the financial system and giving broader access to the safest asset class of all—the liabilities of the Federal Reserve. And it would shrink the repo market: The Fed could effectively crowd out broker-dealers, forcing them to fund portfolios from more stable sources. For broker-dealers that would mean reduced profits, since such funding would be pricier. But that’s a small price to pay for a less-fragile financial system.”

Europe is “more than halfway to a lost decade that’s already worse than the 1930s,” thanks to “too much fiscal austerity and too little monetary stimulus,” Matt O’Brien writes on the Washington Post’s Wonkblog. “It’s a greater depression.”

BASIS POINTS
- Small business lending is still stuck in low gear. At the end of the first quarter, banks held $585 billion in loans to U.S. small businesses, up just 1% from last September and still 18% less than the peak of $711 billion in 2008, according to the Federal Deposit Insurance Corp.

- Output from U.S. factories, mines and utilities rose 0.4% from June, maintaining the prior month’s pace, the Fed said Friday.

- Euro zone trade surplus with the rest of the world expanded in June. http://on.wsj.com/YnXN4X

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